LONDON, Mar 22 (Reuters): Some western banks are lobbying against EU proposals to redistribute billions of euros in interest earned on frozen Russian assets, senior industry sources said, fearing it could lead to costly litigation.
European Union leaders on Thursday agreed to move ahead with work on a plan to use up to 3 billion euros ($3.3 billion) a year to supply arms to Ukraine as they try to bolster Kyiv's fight against Russia, which would still own the underlying frozen assets. EU leaders said the proceeds could be used within a few months.
Some banks fear, however, that they might later be held liable by Russia if they are involved in any transfer of money to Ukraine and that the EU plan could be extended to assets in accounts they hold for sanctioned individuals and companies.
Such an extension has not yet been raised by the EU.
The sources are also concerned that the proposals will lead to a wider erosion of trust in the western banking system.
The sources, who declined to be named due to the sensitivity of the matter, said they were sharing their concerns with British and euro zone policymakers, flagging likely litigation when anti-Russian sanctions are eventually eased or lifted.
Russia says any attempt to take its capital or interest is "banditry" that will lead to decades of legal action against all those involved. Moscow has repeatedly said it will retaliate if its assets or income are expropriated.
Euroclear holds the equivalent of 190 billion euros of Russian central bank securities and cash. Western banks also hold billions of euros, pounds and dollars in assets owned by companies and individuals subject to sanctions.
More than 3.5 million Russians have frozen assets abroad worth around 1.5 trillion roubles ($16.32 billion), Russia's Finance Minister Anton Siluanov said last year.
The EU plan envisages paying a fee to Euroclear, which did not respond to a request for comment.
The Belgium-based central securities depository, which counts some of the world's largest banks as shareholders, will also be permitted to temporarily retain 10% of the profits on stranded Russian assets as a safeguard against litigation.
Under the EU plan, some 90% of the seized cash would be channelled through the European Peace Facility to buy arms for Ukraine. The rest will be used for recovery and reconstruction.
EU, English and U.S. sanctions law typically provides for freezing assets owned by designated parties, but not confiscation. Assets can be confiscated under English law, but only if ruled to be the proceeds of crime.
Permitting the confiscation and redistribution of interest earned on those assets puts banks at risk of being challenged by owners, the sources said.
One source warned of the precedent this proposal would set and the "weaponisation of foreign-held reserves and assets".
Russia itself has seized assets, installed new management at Western companies' subsidiaries and forced departing firms to sell at huge discounts in response to Western sanctions.
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